HSA's...yes, they need reform

As the benefits election season looms over the horizon, the marketing push for HSA's is back. Health Savings Accounts have been addressed here before and in general, they stink. Access, Affordability and Quality: Typically, access and quality face the same challenges as other health insurance plans. It is Affordability, that sells these "policies", and here's the rub. For a lower premium you get less coverage and higher deductibles, no magic pill in terms of finding something special. In order to distract away from this fact is the "savings account" feature of these plans. This allows around two thousand for an individual and around six thousand for a family to be put into a savings account with PRE TAX dollars. It's that pre tax dollars feature that catches the attention of shoppers along with the fact that unlike "flex" accounts, amounts remaining in such accounts after the year are NOT forfeited, they can be used for future medical expenses. Further, with interest rates being paid on savings accounts at abysmal levels, these accounts typically pay more in interest than other "savings" accounts. And there are other options for how to "invest" these dollars. And suddenly, the healthy purchaser of the plan isn't talking about health insurance at all, he/she's talking about savings.

But look further. With higher deductibles and often higher co payments, in the event you actually need health services, AND you need to actually use those pre-tax dollars for such care, your neat little savings account will be gone in very little time (even $5,000 does not go far if you are ill). Further, you're now simply stuck with an inferior health insurance policy. But if you can afford to pay for your health co payments and fees up to the magic "pre tax" number out of another account, you can leave that money to grow in your health savings account. This is where the TAX FREE savings come in. And what could be wrong with that? Right now it's another way to save several thousand dollars a year tax free. Like a 401k (traditional), the health savings account keeps growing. UNLIKE the traditional 401k, however, this money is SUPPOSED to be used ONLY for medical expenses. But, right now no one is watching the store and although the IRS can check on the validity of withdrawals being used for medical expenses, insurance companies typically don't pay attention at all and in fact have argued that they'd have to charge higher fees if they were expected to verify that such money was being used for medical expenses. Fees? Another aspect of these plans is that they charge administrative fees. With interest rates very low, such fees might eat into or exceed the meager profits individuals were hoping for by selling out and purchasing these plans. In that case, of course, ROLLOVER into another HSA is possible. And for the rich or those using the HSA as a second policy (being insured by their spouse under another insurance plan), often this choice is not so out of whack that it's laughable. But as a primary insurance policy BEWARE insurance that sells itself primarily as a means of saving money tax free.

So with all the legislation, why is it we don't hear about including MANDATORY reporting and verification of withdrawals from such accounts for medical purposes by the INSURANCE companies? Is it not of note that when we apply for insurance or heaven forbid seek coverage for medical services that we must provide every piece of relevant and irrelevant information for insurance companies before they pay? And that's the reason. When you seek COVERAGE from your plan, once the deductible is met, you can expect current insurance industry game-playing from stalling to refusal to appeal to providing every piece of information available if you want coverage. As an INSURANCE policy the HSA insurance coverage is the same (with higher deductibles) as other insurance. But the SAVINGS ACCOUNT is your money. Insurers don't care how you spend your money and in fact, FAILURE TO REVIEW withdrawals from HSA's works to their benefit because it becomes a tacit incentive to sell their plans. Only an individual faces the RISK that the IRS will come a calling. Win? Win? Not so. First, in the event of real medical need, your insurance policy has a higher deductible and as anyone knows, $5,000 of your money will probably NOT amount to $5,000 worth of deductible after you consider usual and customary charges that have exploited the carrot and the stick of have I met my deductible yet.

Second, the profits to insurers of selling these "savings" plans provide another revenue option as they get to charge an administrative fee for the accounts. Such fee is subject to insurance company increases EVEN THOUGH they do not review the spending from such accounts. Such fees often erode the individual PROFIT from the HSA.

Is it just mean-spirited to desire mandated insurance company verification? It is a shocking number of dollars that account for insurance fraud. Such fraud amounts to billions of dollars and while individuals are gung ho about stopping fraud when insurance companies blame individual fraud for out of this world costs of health insurance, the oversight, prosecution and recoupment of fraud within insurance companies is not good. Fraud costs you more than covering your diabetic neighbor, go look up the stats on that. Individuals argue against government run insurance based on "fraud" yet with reams of paper spent on "reform", we are not hearing about new mandates (including huge financial penalties) for insurance company fraud.

Mandates for insurance company review of withdrawals from HSA's is legitimate, insurance companies are getting money from these "policies". Tacit tolerance of threats by insurance companies that they would have to raise administrative costs of such accounts if they reviewed them is ridiculous because arguing that without tolerating fraud the product doesn't work means that the product doesn't work. Further, the stress on our governmental system where now only the IRS can catch the cheats using HSA money for other than medical expenses means that we will need more IRS staff to enforce the legal constraints of these plans or that the government itself will have to buckle under insurance company refusal to monitor these accounts.